June 21, 2010 – A condominium “unit” that has not been built is still subject to a property tax assessment by statute, regardless of how the condominium declaration defines the term “unit,” the Wisconsin Supreme Court recently held.

In Saddle Ridge Corp. v. Board of Review for Town of Pacific, 2010 WI 47 (June 18, 2010), the supreme court rejected Saddle Ridge Corp.’s argument that condominium “units” do not become taxable parcels until a structure has been built. The Town of Pacific’s Board of Review assessed property tax on condominium units that had been planned and declared, but not yet built.

Affirming the Board of Review’s determination, the supreme court – in an opinion by Chief Justice Shirley S. Abrahamson – declared that a condominium owner cannot employ a “clever use of definitions in a condominium declaration” to avoid paying property tax.

Facts

Saddle Ridge developed three condominiums. As of 2006, not all of the condominium units in the development were built or sold – 41 units were not built. Condominium units are subject to property tax under Wisconsin law.

In previous years, the Board of Review for the Town of Pacific assessed a property tax on the unbuilt units. Saddle Ridge did not contest previous assessments. In 2006, however, the assessment value of each unbuilt unit jumped from $5,000 to $32,000.

Saddle Ridge contested the 2006 assessments, arguing that a condominium “unit” does not become a “unit” for tax purposes until a structure is added. That is, a condominium unit does not become a unit until it is surrounded by “four walls or a cubicle of air or a building.”

As the supreme court noted, Saddle Ridge “did not present the Board of Review with alternative comparables or suggest a lower valuation. It maintained that the assessment value of each unit should be zero.” The Board of Review upheld the assessments value. The circuit court vacated the board’s determination. A sharply divided appeals court affirmed.

To create a condominium, the court explained, a condominium “declaration” and “plat” must be filed. Under section 703.11(3), the declaration must contain a description of each unit and the plat “must designate every unit within the condominium.”

Section 703.21 provides that every “unit” is subject to property tax. The question, the court noted, is “whether each parcel taxed by the Town was in fact a unit. …”

Arguments

Saddle Ridge argued that the condominium declarations provide the definition of a unit, and the declarations here require a structure to be built to be considered a unit.

The court rejected this argument, noting the existence of a statutory definition of “unit” under section 703.02(15) that does not require a physical structure to be in place, and the statutory definition is controlling.

Under 703.02(15), a “unit” is defined as "a part of a condominium intended for any part of independent use, including one or more cubicles of air at one or more levels of space or one or more rooms or enclosed spaces located on one or more floors, or parts thereof, in a building.”

The supreme court explained that this definition does not require a building. The court stated: “The statutory phrase ‘in a building’ appears in a clause of the definition introduced by the word ‘including; that gives non-exhaustive illustrations of a ‘unit.’”

In Aluminum Industries, the court discussed whether a “unit” includes condominium property that was not yet constructed, for purposes of common expense assessments. Aluminum Industries, the court wrote, “compels the conclusion that each ‘unit’ identified in the condominium declaration is a ‘unit’ for purposes of separate taxation under Wis. Stat. section 703.21, regardless of whether the unit has been constructed.”

The court noted the dissenting opinion of appeals court Judge Charles Dykman, who reasoned that “if a declared but unbuilt unit does not establish a taxable parcel, the Town of Pacific will be unable to tax anything in these areas until something is built.”

The supreme court reversed the appeals court and upheld the board’s determination.